Sales of unused IPv4 addresses gathering steam

A growing number of U.S. carriers and enterprises are hedging their bets on IPv6 by purchasing blocks of unused IPv4 addresses through official channels or behind-the-scenes dealmaking.

The U.S. government, Internet policymakers and leading content providers such as Google, Facebook and Yahoo are encouraging network operators to adopt IPv6. In particular, proponents of the new version of the Internet Protocol are promoting World IPv6 Launch Day, an event scheduled for June 6 that requires participants to permanently enable IPv6.

But even as many companies plan their migrations to IPv6 - so far, 1,550 Web sites, 45 ISPs and two home router vendors have committed to World IPv6 Launch Day - they are also purchasing hundreds, thousands, even millions of IPv4 addresses to ensure smooth Internet operations during what's expected to be a decade-long transition from IPv4 to IPv6.

IPv4, the Internet's main communications protocol, has limited address space that is being rapidly depleted worldwide. The replacement protocol, IPv6, has a vastly expanded address space but is not backwards compatible with IPv4. Most network operators plan to run IPv4 and IPv6 side-by-side for years to come in what's called dual-stack mode, and for this set-up they need both IPv4 and IPv6 addresses.

Designed 40 years ago, IPv4 has 4.3 billion addresses that hosts can use to connect directly to the Internet. Initially, IPv4 addresses were given out in gigantic chunks as large as 16.7 million addresses each to the U.S. federal agencies, universities and corporations involved in the original network research that resulted in the Internet. Most of these organizations use only a tiny fraction of their so-called /8 IPv4 address space, and it's now possible for them to resell unused portions for a huge profit.

The IPv4 address secondary market has emerged since last spring, when Microsoft made a splash by purchasing 666,624 IPv4 addresses from Nortel during its bankruptcy proceedings. Microsoft spent $7.5 million on Nortel's IPv4 addresses, giving the market an evaluation of $11.24 per IPv4 address. Microsoft made this IPv4 address purchase even though its Bing search engine is one of the founding participants of World IPv6 Launch Day.

Since then, several large bankruptcy-related IPv4 address sales have been approved. In December, for example, Borders sold 65,536 IPv4 addresses - what's called a /16 -- to software provider Cerner for $12 each.

Some IPv4 address sales - or transfers as Internet policymakers prefer to call them - are being recorded through official channels such as the American Registry for Internet Numbers (ARIN), which allocates IPv4 and IPv6 address space to North American ISPs and other network operators.

As of March 31, ARIN had recorded 88 IPv4 address blocks transferred that total more than 4 million IPv4 addresses. Two of these transfers involved what are called /12 blocks of addresses, with more than 1 million IPv4 addresses each. (These IPv4 address sales - which are known as 8.3 transfers in ARIN parlance - are different than transfers of IPv4 addresses that occur as the result of a merger or acquisition, which ARIN calls 8.2 transfers.)

"The largest amount of space being transferred is because companies are going through bankruptcy proceedings," said John Curran, President and CEO of ARIN, which still has more than 77 million unused IPv4 addresses in its coffers to dole out for free. "This [transfer process] provides them with a way to make sure they achieve an appropriate value for their number resources. They have to do work to de-configure the addresses and make them available to the community, so it makes perfect sense for them to be compensated for that work."

Curran said some network operators prefer to buy IPv4 address space through an 8.3 transfer rather than receive it free from ARIN because of differing policies over the two types of allocations. Network operators must justify their need for IPv4 addresses for either process, but they can receive 24 months' worth through an 8.3 transfer and only 90 days' worth through a free allocation.

"You can get two years' worth of the space you need and get it locked up based on forward-looking projections and past history of usage with an 8.3 transfer," Curran explained. "But if you come to us for a regular allocation, we will give you what you need for 90 days. Then you'll have to keep coming back every 90 days."

More 8.3 transfers are likely to occur soon if ARIN and the other regional registries agree to a proposed policy change that will allow IPv4 address transfers between regions. That would allow companies in Asia - which has run out of all but a handful of IPv4 addresses held in reserve for startups - to buy unused IPv4 address space from the U.S. entities that hold /8 blocks.

"The inter-regional transfer policy has been recommended for adoption. It could be approved any day," Curran said. "It will definitely create some additional transfers. Again, you need to have some IPv4 address space even if you deploy IPv6 because you have to gateway back to old Internet users. Even companies going to IPv6 need IPv4 addresses."

Meanwhile, experts say just as many - if not more -- IPv4 address sales are going on outside of ARIN's 8.3 transfer process as there are being recorded by ARIN. That's because many of the original recipients of /8 IPv4 address blocks -- so-called "legacy" holders that received their IPv4 addresses before ARIN was created -- consider themselves outside ARIN's oversight.

"In ARIN's region, there are more transferred blocks than those being allocated directly by ARIN," says Peter Thimmesch, chairman of Addrex, a Herndon, Va.,-based IPv4 address marketplace that facilitated the Nortel IPv4 address sale to Microsoft. "This is because of ARIN's rules that you can only get allocations for a three-month period. If you're building a $3 billion data center, you are not going to rely on getting numbers every three months...Why not buy a couple of /12s [which have 1,048,576 IPv4 addresses]? It's about business continuity for the service providers."

"Certain companies may be touting their IPv6 deployments, but for the most part the Web hosting providers, tier 1 and tier 2 ISPs are not making material investments in doing full dual-stack IPv4 and IPv6 environments," said Marc Lindsey, a partner with Washington law firm Levine, Blaszak, Block & Boothby, who represents companies selling IPv4 address space. ``They are continuing to assume they will serve customers with IPv4.''

"There's a woman in California who has a /16 [with 65,536 IPv4 addresses]," Thimmesch says. "She was trying to do a charter school in Riverside aimed at addressing the digital divide, and she got a /16 back in 1993 ... Her company closed down. We've resuscitated all the paperwork. She's in her 70s, and she's going to have a windfall."

Lindsey says the most common unit of IPv4 addresses for sale right now are /16s, such as the California woman has for sale. ``The unit of measurement of value is a /16," he says. "The range I've seen for a single /16 is anywhere from $8 to $13 per address."

Indeed, Addrex is currently marketing an entire /8 IPv4 address space for sale, which could have a significant impact on the IPv4 resale market. He estimates this /8 IPv4 address block will be worth anywhere from $500 million to $1.5 billion

"We will not say who the seller is, but it is an American publicly traded company," Thimmesch says, adding that he considers this a "material event" for the IPv4 commodity marketplace that Addrex is creating. "This is the same thing as an asset sale."

If Addrex is successful at facilitating the /8 sale, "rest assured that it is going to disturb the status quo of the regional registry regime," Lindsey says. "There are a variety of /8 holders that are participating in the secondary market. There is more than one who I am advising in different stages of participation."

Lindsey points out that for many North American network operators, the choice between IPv4 and IPv6 is not an either-or decision. It's a necessity that they support both protocols for many years into the future.

"It will be a slow, natural progression forward, with a lot of legacy IPv4 content and assets lying around," Lindsey says. "A lot of IPv4 buyers are looking to build up their inventory to keep going as long as possible. They want a three-to-five year hedge."

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